Inside the Numbers: November 2016

The past few years in the residential real estate industry have been unique in their own subtle ways, but several well documented factors have been consistent: Mortgage interest rates have remained low, listing inventory has been in short supply and we have seen good recovery of prices in many areas. However, there are many idiosyncrasies in the different “sub-markets” within the greater Twin Cities residential real estate market and I’d like this edition of Inside the Numbers to focus on those. The takeaway from this is that not all markets are equal and you must understand this to have a successful transaction.

Sales in varying price ranges are different as the prices increase. Below are four metrics from the regional MLS. They illustrate supply, demand, percentage received for the sale of a listing and how often a typical listing is shown to a potential buyer(s). The differences are dramatic.

List Price

Properties
For Sale

Month’s Supply

% of Original List Price (Median)

Showings per Listing, per Month

$0 – $250,000*

5340 (-25.4%)

1.9 (-26.9%)

98.7% (+1.1%)

8.2 (+24.2%)

$1,000,000+

749 (+4.2%)

15.2 (-7.3%)

93.8% (-0.2%)

1.8 (+20%)

As you can see, supply and demand is far greater in the sub-market below $250,000. In addition, more modestly priced dwellings are accepting offers closer to asking price and receiving far more showings. Given these facts, one would assume builders are frantically building moderately priced homes to satisfy the demand in the lower price ranges. This is not happening. In fact, in October the median sale price for a previously owned property was $225,000, while new construction was $389,144. Builders are building more expensive structures because they are more profitable. The reasons cited for this are: local impact fees, shortage of lots, labor and lending. Builders are well aware of the demand in various price ranges, but they will only embark on a project if it is profitable. At this time, it is more profitable to build a more expensive property.

Other sub-markets that deserve attention are single-family homes, condos and townhouses. These distinct property types are typically lumped together. It has been well documented how difficult it is for buyers to find a home these days, but did you know it’s more difficult to find a town-home or condo?

Property Type

Month’s Supply

Single Family (Home)

2.9

Townhouse

2.6

Condo

2.0

You have also probably heard that listing inventory is low and has been declining for several years, which creates a problem for buyers. The obvious solution would be to have more listings, and with prices rising, you would expect this to happen. However, home ownership tenure has increased from 6 years to 10 years since 2009. Since the residential real estate “correction” of 2008, consumers have become more conservative. This is further proof that real estate is a confidence driven market.

We live in a complex residential real estate market and it is important to be well informed. Thanks for reading!